Residential Lending Policy

Transcription

1 Residential Lending Policy Updated: 3 October 2012 Firstmac Limited Telephone: ACN (AFSL / ACL ) Facsimile: (07) GPO Box 7001 Riverside loans@firstmac.com.au Page 1 Brisbane QLD

2 Contents Residential Lending Policy... 1 Updated: 3 October Contents Introduction Responsibilities Firstmac credit National Consumer Credit Protection Act ( NCCP ) Responsible Lending provisions Security requirements High Density apartments / units Geographic location Borrowers, guarantors, and mortgagors Age of borrower / guarantor Joint borrowers Corporate borrowers & trusts Hybrid Trusts Non-English speaking borrowers Non-resident borrowers Powers of Attorney Maximum Total exposure Loan purpose Loan applications which require Mortgage Insurance cover Loan amount Maximum LVR & Loan Amounts Repayment types Loan term Interest rate options Split loan options Loan-to-Valuation Ratio (LVR) Repayments BSB details Firstmac Residential Lending Policy Page 2

3 15 Redraw Security Valuations Valuation variation - acknowledgement by proposed borrower(s) Off-the-Plan purchases revaluation and increased borrowing at settlement Mortgage insurance approval Period of time from exchange of purchase contract to settlement for purchase Valuation increased borrowings LVR (Lending Value Ratio) Other Valuations sales / purchases without the intervention of an agent and non-arms-length transactions Builder / Developer Sales in Queensland Section 27c Certificate Valuation panel General Lender's Mortgage Insurance (LMI) Employment and income Employment confirmation Confirming employment and income For all loans Self-Certified (Lo Doc) loans Evidence of income Salary and wage earners Self employed applicants /companies /trusts. Except for Self-Certified (Lo Doc) loans Self Certified (Lo Doc) Borrowers Assessing the ability to repay Self-Certified (Lo Doc) loans Acceptable income for debt service purposes The following income sources are not acceptable: Loan serviceability calculation Notional Rental Expense Joint income and joint commitments Credit history Credit reports Firstmac Residential Lending Policy Page 3

4 24 Confirmation of debts Non-disclosure of debts Current debt position Outstanding rates, body corporate charges Savings history and proof of deposit and source Evidence of funds to complete Gifted funds First Home Owners Grant (FHOG) Refinances, Variations and Substitutions Internal refinances and further advances Variations and Substitutions Identifying borrowers Early repayment fees (These only apply to loans originated pre 1 July 2011) Deferred Establishment Fee (DEF) Proportional DEF Accelerated repayments Release of security Fixed rate break costs Offset accounts Self-Certified (Lo Doc) loan conversions Loan products Foreign resident loans Construction loans Self-Certified (Lo Doc) loans Fixed rate loans Business loans Lines of credit loans Fire insurance Title insurance Annexure 1 Valuation Variation Acknowledgement template Annexure 2 Firstmac Valuations Standards and Valuer Accreditation Annexure 3 Firstmac Valuation Guidelines for Mortgagee In Possession valuations Firstmac Residential Lending Policy Page 4

5 1 Introduction Firstmac s lending guidelines have been developed to assist Originator/Mortgage Managers in writing mortgage loans with a risk profile consistent with that expected of AAA rated mortgage loan securities and industry best practice generally. Firstmac is prepared to look at the merit of loans on an individual basis. Ultimately however, if mortgage insurance is unavailable on a transaction, Firstmac cannot accept the loan into the program unless specifically allowed under Firstmac policy. Any exceptions to policy may be considered on case by case basis by Firstmac credit and if supported, must be mortgage insured. This should be read in conjunction with other Firstmac updates, guidelines and operations manuals which together form the basis for providing residential loan funding under the mortgage program. Firstmac s lending guidelines are governed by the Firstmac Credit Committee Charter. All loans submitted and processed through Firstmac or the Firstmac Residential Program must comply with this Policy, the specific requirements of the Firstmac Residential Lending Policy and all other guidelines and procedures as advised from time to time by Firstmac to Originators / Mortgage Managers / Agents / Brokers and other introducers. All parties must also ensure that they also comply with the specific Responsible Lending requirements. The Firstmac policy, procedures, guidelines and requirements need to be complied with as they are designed to ensure that Firstmac complies with its Responsible Lending obligations for all applications (including loan variations and additional advances). If the loan application form or information provided on any given application does not adequately demonstrate that the Originator / Mortgage Manager / Agent / Broker have undertaken an appropriate level of enquiry or loan assessment, then Firstmac may request that additional information be provided and submitted. All loans being documented must also comply with the requirements in the Documents and Procedures Manual as amended from time to time, under the Firstmac Residential Program. 2 Purpose of the Lending Policy This policy contains guidelines for residential lending nationwide. It is intended as an easy reference manual to lending guidelines, acceptable credit standards and macro processes. The principles presented in this policy should not be interpreted as a set of inflexible rules, but as a set of guidelines, to be practiced in association with prudent lending practices and common sense. Every application should be assessed on its own merit. Loans that are outside the guidelines presented in this policy may still be considered if there are inherent strengths to the transaction; credit risks can be mitigated with justification and sufficient supporting documentation can be provided which would enable the loans to be approved. 3 Responsibilities All parties have particular responsibilities to be fulfilled to ensure prudent lending practices are followed: Firstmac Residential Lending Policy Page 5

6 Originator / Mortgage Manager or Originator / Mortgage Manager Agents or Brokers must perform the following tasks: Conduct loan interview, discuss loan options and determine the most suitable loan product for the customer Advise the customer about the approval process Assist customer with the preparation of the loan application if required Sight all original verification documents required in support of the loan application, check their authenticity and obtain copies for the file noting on them that they have sighted the original document and forward copies to the Originator/Mortgage Manager in the case of Originator/Mortgage Manager agents or in the case of Brokers dealing direct with Firstmac to Firstmac. Complete the Customer Identification and Verification form after comparing the borrower and their signature with the photographic ID and taking a copy of the identification documents or any other identification procedures as advised and required by Firstmac. In addition, Originator/Mortgage Manager only must perform the following tasks: Using the White Pages or Yellow Pages Telephone Directory, independently verify the telephone number of the employer/accountant and contact the employer /accountant by telephone to confirm employment details. A file note is raised noting the name of the caller; the number called; the date and time of the call and the name/position of the person providing the confirmation and full details of what was confirmed ie income, length of employment, position etc. Print a copy of the White / Yellow Pages listing submit with the loan package and retain a copy on file. NOTE. Under no circumstances are mobile phone numbers or numbers supplied by third parties to be used. Obtain credit reports on all parties to the loan application together with associated companies; proprietorships; possible matches and cross-linked files Obtain valuations of the security properties Prepare and submit Lender s Mortgage Insurance application for approval 3. 1 Firstmac credit Originator / Mortgage Manager DLA approvals: Undertakes a review of the loan application to ensure compliance with program parameters Advises Originator/Mortgage Manager of any errors to be corrected Monitors correction of identified errors Performs Valuer checks Audits employment confirmations on a random basis Undertakes ongoing audit Firstmac approvals: Undertakes a credit assessment of the loan application and a review of the loan application to ensure compliance with program parameters Firstmac Residential Lending Policy Page 6

7 Advises the Originator / Mortgage Manager if more information is required or of any special conditions. It would be expected that the requirement for additional information would occur rarely as the Originator / Mortgage Manager would supply all the required information with the application Approves, declines or defers the application Undertakes ongoing audit 3.2 National Consumer Credit Protection Act ( NCCP ) Introduction The Uniform Consumer Credit Code was replaced by the National Credit Code ( NCC ) on 1 July The NCCP requires all businesses operating in the consumer credit to: - Be licensed or appointed a credit representative (subject to certain exceptions) - Comply with the National Consumer Credit Code - Engage in responsible lending practices The NCCP applies to Firstmac and also to mortgage and finance brokers. It is important that employees and any agents of Firstmac know how the NCCP affects the policies and procedures and processes of Firstmac. Ongoing compliance with the NCCP is mandatory. All Originators / Mortgage Managers / Introducers and their representatives and employees involved with any credit related activities under the NCCP are required to observe and comply with the guidelines and Responsible Lending requirements. Firstmac expects any Mortgage Managers / introducers to suggest or recommend to an applicant only those arrangements for finance that the Mortgage Manager / introducer genuinely and reasonably believes are not unsuitable to the needs of that applicant after undertaking an assessment of the applicant s capacity to repay the loan. This standard applies to all loans and not just NCC regulated loans. The Originator / Mortgage Manager / Introducer warrants and represents that each of their staff and\or representative processing a mortgage loan application which is assessed and submitted to Firstmac has been trained on and understand their obligations under Firstmac's Lending Policy and requirements and obligations under the NCCP including the responsible lending obligations. If there are any queries, please direct them to your contact or BDM at Firstmac. 3.3 Responsible Lending provisions There are key responsible lending provisions and obligations contained in the NCCP which includes the following: making reasonable enquiries about the consumers financial situation and circumstances, and their requirements and objective taking reasonable steps to verify the consumers financial situation making a preliminary (Originator / Mortgage Manager / introducers) or final assessment (lenders) about whether the credit is not unsuitable for the consumer Firstmac Residential Lending Policy Page 7

8 providing a copy of the assessment on request if assistance is provided (Originator / Mortgage Managers / introducers) or credit is provided (lenders) Credit will be unsuitable, if at the time of the assessment it is likely that: a consumer will be unable to comply with their financial obligations under the proposed credit contract, or could only comply with substantial hardship; or the proposed credit contract will not meet the customer s requirements or objectives All loans submitted and processed through Firstmac or the Firstmac Residential Program must comply with this Policy, the specific requirements of the Firstmac Residential Lending Policy and all other guidelines and procedures as advised from time to time by Firstmac. All parties must also ensure that they also comply with the specific Responsible Lending requirements. The Firstmac policy, procedures, guidelines and requirements need to be complied with as they are designed to ensure that Firstmac complies with its Responsible Lending obligations for all applications (including loan variations and additional advances). If the loan application or information provided on any given application does not adequately demonstrate that an appropriate level of enquiry or loan assessment have been undertaken, then Firstmac may request that additional information be provided and submitted. Set out below are the minimum that Firstmac requires to comply with its responsible lending obligations for all loan applications (including loan variations and additional advances) submitted by Originators, Mortgage Manager, brokers and introducers. The details below serve only as a guide that can be customised to ensure these satisfy the specific way Originators, Mortgage Manager, brokers, introducers choose to interact with customers. In addition to complying with all the current Firstmac lending policy and underwriting requirements as amended from time to time, Firstmac also requires that all Originators, Mortgage Manager, brokers and introducers make specific enquiries relating to the following: - is customer aware of information relevant to his/her/their loan application that has not been provided and may have an adverse impact on his/her/their financial circumstances, - is customer aware of any future change in his/her/their employment which may adversely affect his/her/their ability to meet his/her/their current and future financial obligations. - does customer anticipate any increase to his/her/their expenses/liabilities over the next 12 months (e.g. ill health or disability, a possible claim requiring payment, end of interest free or honeymoon period on a loan); - does customer anticipate any decrease to his/her/their income during the next 12 months (e.g. extended leave, retirement, reduction in overtime); - does customer anticipate any reduction in profit/income/cash flow to his/her/their business activities during the next 12 months. Originators, Mortgage Manager, brokers and introducers will also need to take into account and consider the following: Firstmac Residential Lending Policy Page 8

9 - ability of the customer to meet his or her financial obligations under the Proposed Contract or ability to meet obligations without substantial hardship - take reasonable steps to verify the customer s financial situation - assess according to the information provided by the customer about their objectives and requirements - with regard to the stated loan purpose, there is an obligation to determine whether or not a loan is not unsuitable and an important part of that is to identify in more detail about the stated purpose (if it is too general or is not clear eg future investment purposes ) and what the funds are to be used for and ensure that the settlement proceeds are applied so far as we are able for that purpose. Assessment All Originator / Mortgage Manager / introducer must make the preliminary assessment within 90 days of when the credit assistance is provided. This will be when the Mortgage Manager / introducer assist the borrower to apply for a loan or an increase to a loan. Assisting a borrower arrange a settlement is not credit assistance, and so the assessment does not need to be within 90 days of loan settlement. Lenders must make the assessment within 90 days of when the loan contract is entered or loan principal amount is increased (120 days if the loan is used for the purchase of residential property and is secured by a mortgage over that residential property). The time limit for new loans relates to the date of the credit contract, not the loan settlement date, whereas the time limit for loan principal amount increases relates to the date the loan principal amount is increased, not the contract date. The assessment must state the period the assessment covers. In order to demonstrate compliance with the law, Originator / Mortgage Manager / introducer and lenders will need to keep a record of the steps taken to make reasonable enquiries; to verify the consumers financial situation. The Originator /Mortgage Manager / introducer must retain a written (includes electronic) copy of the preliminary assessment and provide it to borrowers on request made within seven years of the date of the credit assistance. Note that these procedures apply equally to principal increases as to new loans. The assessment can be wholly in electronic form (ie a suitable record on a system) but needs to contain a statement that a credit assessment has been made on a specified date and the period for which it applies. 4 Security requirements All loans must be secured by registered first mortgages over acceptable real property. Acceptable real property includes freehold title (Torrens Title, Strata Title, Community Title, Common Law) and Crown leasehold (providing the lease runs for at least 5 years past the maturity date of a loan). Security properties must be for residential use and must be in good condition, free of defects, well presented and readily saleable. Acceptable security includes houses; home units; flats; apartments; town houses and villas; and vacant land zoned residential or rural-residential. Where a security property does not fall into one of the above categories and is not an unacceptable security, it may be submitted for consideration on a case by case basis to senior DLA holder and is subject to Firstmac s other standard policy considerations. Firstmac Residential Lending Policy Page 9

10 Unacceptable security includes: Studio Apartment or bed-sitter (no separate bedroom) Serviced apartments Title is leasehold strata Company title units Display home / relocatable homes Kit homes Dual key apartments Retirement homes and villages Income producing rural properties or farms Income producing properties - Backpacker hostels or boarding-houses Properties not connected to water (except in clearly recognized urban areas) and power Properties with an area in excess of 10 hectares and properties with restrictive usage Properties designed, zoned, or used for commercial purposes (excluding residential home units in a commercially zoned development) Properties to be constructed by an owner-builder (in whole or part) Leasehold properties (other than Crown Land with a term of at least 5 years past the maturity of date of a loan in the ACT) Purple Title (W.A.), or Moiety Title (S.A.) Under a time share arrangement Limited Title (any defects) Contaminated land Properties with life tenancy A strata title home unit less than 40 sqm Properties subject to the Western Lands Act Properties subject to mines subsidence or land slip Properties that are unique, or have restrictive usage Properties located on an unsealed road and / or considered remote / bush style / shack. Units in a strata hotel/motel Resort style dwellings Security boundary located within 50 metres of High Voltage Transmission lines Located on an island without sealed road connection to mainland Vacant land exceeding 2.2 hectares Vacant land without signed fixed cost building contract Conversions (other than warehouse conversions) Unit developments where the development is held on one title and the number of dwelling exceeds 1 unit Any exceptions to this may be considered on case by case basis by Firstmac credit and if supported, must be mortgage insured. Firstmac Residential Lending Policy Page 10

11 4.1 High Density apartments / units A High Density apartment is a strata titled home unit or apartment in a postcode defined as High Density Location as per the Firstmac Acceptable Security Location guide, and part of a development comprising more than 35 apartments. The following apply to these types of security: maximum LVR 80% valuation should include comparable sales outside the development, and details of any resales within the development security must be in a prime location LVR and concentration restrictions may apply to individual developments maximum of up to 50% of gross rental accepted for servicing minimum floor size of 50sqm (40sqm in high demand locations) in living area, excluding balconies and car space. borrower should be a high net worth with net assets of at least $500,000 houses within high density locations are exempt from this policy, as are home unit developments comprising a total of 35 apartments or less each application will be assessed by Firstmac on case by case basis. Any exceptions to this may be considered on case by case basis by Firstmac credit and provided it is supported, must be mortgage insured. 5 Geographic location Security properties can be within all states and territories of Australia and be located in capital cities, metropolitan areas and regional centres with a minimum population of 5,000. The security property should reside as much as possible within the town boundaries. Specific Firstmac DLA Discretion - exceptions will be considered on case by case basis. 5.1 Security concentration Firstmac may impose a restriction on the number of properties accepted as security in any one (1) development to limit concentration of exposure. Any such restriction will be considered on a caseby-case basis. Concentration limit As part of risk management, Firstmac may set prudential concentration limits (eg on individual projects, developments or buildings, areas) to help monitor and manage exposures in line with business objectives, these may include security type (e.g. vertical/horizontal development), geography, product. 6. Borrowers, guarantors, and mortgagors It is a requirement of the National Credit Code (NCC) that a mortgage cannot be taken from anyone other than a borrower or a guarantor. Borrowers and guarantors can be individuals, corporations or trusts. Firstmac Residential Lending Policy Page 11

12 6.1 Age of borrower / guarantor Firstmac does not discriminate against borrowers on the basis of age however: Firstmac does not lend to or accept guarantees from persons under the age of 18. Where a borrower is unlikely to repay their loan during their working life consideration should be given as to how it will be repaid eg from superannuation or sale of assets. For example a 90% loan to a 60 year old borrower to purchase a principal place of residence, with no assets of consequence, could be deemed to be unconscionable as the only way out once the borrower is unable to work is the sale of the house. 6.2 Joint borrowers Where there are joint borrowers it is important to ensure that: No borrower is acting under the duress of another All borrowers receive a benefit from the loan All borrowers are fully informed with regard to all aspects of the loan 6.3 Corporate borrowers & trusts Loans to corporate borrowers must be supported by the unlimited joint and several guarantees of the company director/s, unless waived by Firstmac and the Mortgage Insurers e.g. nominal directors will not normally be required to provide a guarantee. Where a loan is to an individual/s who own/s a company, and the servicing of the loan is dependent upon the income derived from that company, the guarantee of the company must be obtained. Loans to trusts are to be provided to both the trust and the trustee/s in their own right. Where the trustee is a company, the unlimited joint and several guarantees of the directors of the trustee company will be required. In order to reduce the risk of challenges to the validity of guarantees, guarantors are required to obtain independent legal advice regarding the provision of a guarantee. In certain circumstances Firstmac may consider waiving this requirement e.g. sole trader company. Independent financial advice may also be required for guarantors. Trustee/s of a Self Managed Superannuation Fund (SMSF) are acceptable borrowers. Please refer to Firstmac s SMSF lending policy requirements. 6.4 Hybrid Trusts These are a combination of discretionary and unit trusts which are very complex and tax driven. The loan structure required to gain the benefit of the trust and our inability to identify the beneficiaries of any cash flow make them unsuitable borrowers and we do not lend to this type of trust. 6.5 Non-English speaking borrowers Firstmac will lend to non-english speaking borrowers, however they must employ the services of a qualified, independent and professional translation service and provide a certificate verifying the Firstmac Residential Lending Policy Page 12

13 documents have been independently translated. A template of the acceptable certificate is available from Firstmac Online. 6.6 Non-resident borrowers In the case of loans to non Australian residents (other than New Zealand residents) the lender must ensure that the Debtor has a current irrevocable and unlimited power of attorney in favour of an Australian resident which is suitable for service of notices in respect of Housing Loans, and there must be an Australian address for notices to be given. 6.7 Powers of Attorney Firstmac does not accept loan applications or legal documents, signed under power of attorney except in the case of corporate borrowers. There have been several instances where even though powers of attorney have been registered with the respective Titles Offices they have not been signed by the donor and we have no way of verifying whether or not they are genuine unless we deal directly with the borrower in which case there should be no need for an attorney. In addition there have been cases where the attorney has raised money for their own personal benefit which is illegal unless specifically provided for in the power of attorney, otherwise all actions of the attorney must be for the benefit of the donor. Where the borrower is overseas, special arrangements can be made for the delivery and execution of documents subject to a business case being put to Firstmac. 6.8 Maximum Total exposure The maximum exposure to any one borrower is $2.5million. Exposures above this amount may be considered on an exceptional and a case by case basis. Any such exceptions where supported by Firstmac Credit must be mortgage insured. 7 Loan purpose Applicants must provide full details of the loan purpose to assist in the determination of the loan s status under the NCC (refer National Credit Code section of the Program Overview). Acceptable loan purposes include: Purchase owner occupied residential property Purchase investment residential property Construction of residential property owner occupied or investment (not owner- builder) Re-finance existing owner occupied or investment residential property loans Personal debt consolidation Purchase of shares / investments Purchase of vacant residential land Home renovations. Firstmac Residential Lending Policy Page 13

14 Any other legal purpose related to consumer goods and services; travel and holidays; household and personal goods; motor vehicles approved by Firstmac and Lender s Mortgage Insurers. Business Re-finance an existing business loan or part of an existing business loan Purchase plant and equipment Purchase an existing business Equity release / cash-out The correct loan purpose must be identified simply stating future investment is not acceptable. Firstmac may require evidence to support the purpose such as contracts of sale for investment purchases. EQUITY RELEASE / CASH-OUT POLICY - Any loan or loan component that is given directly to the borrower is considered cash-out regardless of the proposed loan purpose. Purpose must be clearly identified in all cases. Where the loan purpose includes an amount for home renovations or improvements, provided the current as is valuation of the security property can support the proposed amount within current LVR policy, then any loan draw-downs for these renovation or improvements may not need to be controlled by Firstmac or be supported by formal quotes and progress valuations to confirm the completed works. Full Doc Loans- Greater than 90% LVR no cashout 85% to 90% LVR maximum 20% cashout of security value up to 85% LVR unlimited cash out The following loan purposes are not acceptable: Refinance which includes more than 3 unsecured debts (not home loans or investment loans) regardless of the LVR. Any refinance must be supported by evidence of satisfactory repayment history over most recent 6 months (3 months for credit card and other unsecured debts) Refinance greater than 80% LVR which includes cash out, other than for a defined investment purpose, Not General Investment Purposes or Home Improvements, which cannot be supported by written quotation or documentation. 7.1 Loan applications which require Mortgage Insurance cover All applications must comply with the requirements of the Firstmac Lending policy and guidelines. Loan applications with any of the following features are required to be mortgage insured up front and are NOT available on a NON MI basis: LVR exceeds 80% Loan Amount exceeds $750,000 Firstmac Residential Lending Policy Page 14

15 Any Self Certified (Lo Doc) loan applications for any loan amount Any loan application for Non Resident borrowers Any additional advances to existing loans which are currently mortgage insured Any construction loan Cash Out where the funds disbursed is not in line with the stated loan purpose Business loan where the loan purpose includes business related purposes and loan amount is over $500,000 Sales / purchases without the intervention of an agent and non-arms-length transactions Credit Bureau report reveal any prior default (paid or unpaid), judgement or bankruptcy Completed dwellings and Vacant Land properties which exceed the Maximum LVR & Loan Amounts in Section 8. The following are also required to be mortgage insured up front and are NOT available on a NON MI basis: Security property for loan application which involve any of the following: - Property is in new development, housing estate, unit sale by the developer - Living area is under 50sqm (excluding balcony and garage) - Valuation report contains any risk ratings of 4 or 5, or adverse commentary - Any securities located outside of Category 1, 2 or 3. Any security policy exceptions may be considered provided there is LMI cover in place - which are unacceptable under existing Firstmac policy. General Firstmac DLA discretion - Any policy exceptions may be considered on case by case basis by Firstmac Credit and provided it is supported by Firstmac Credit, it must be mortgage insured up front. 8 Loan amount Maximum loan amounts apply as follows (capitalised LMI premium can be added to the maximum LVRs and loan amounts. Note that the maximum LVR is 90%): Any loan application above 80% LVR must be mortgage insured. Loan type Security type Maximum LVR Maximum loan balance Fully Verified Owner Occupied Investment Dwellings 90% (inclusive of capitalised premium) 90% (inclusive of capitalised premium) $750,000 $750,000 Firstmac Residential Lending Policy Page 15

16 Self Certified (Lo Doc) # Vacant Land with construction contract Owner Occupied Investment Dwellings Vacant Land with construction contract 90% $600,000 80% $750,000 80% $550,000 # Self Certified (Lo Doc) is only available as Additional Advances and on an exception basis. These will be considered on a case by case basis and only for existing clients up to maximum additional advance of $100, Maximum LVR & Loan Amounts Any loan application above 80% LVR must be mortgage insured. Doc Type Full Doc Full Doc Self Certified (Lo Doc) Self Certified (Lo Doc) Property Type House / Unit Vacant Land (up to 2.2ha) LVR Category 1/ Metro postcode Category 2 / Regional postcode Category 3 / Other postcode 0 80% $750,000 $750,000 $500, % - 90% $750,000 $600,000 $450, % - 95% NA NA NA 0 90% $600,000 $400,000 $200, % - 95% NA NA NA House / Unit 0-80% $750,000 $750,000 $500,000 Vacant Land 0-80% $600,000 $400,000 NA Maximum loan amount apply on a per security basis. Loan amounts greater than the above may be considered on case by case basis. Categories refer to Firstmac Acceptable security location guide. 9 Repayment types Firstmac offers the following repayment options: Firstmac Residential Lending Policy Page 16

17 Term loans Principal & Interest amortising over the term of the loan Blended Interest Only and Principal & Interest which allows for an initial interest only period of up to 10 years then amortising over the remaining loan term Interest only with no amortization, maximum 10 years Line of Credit Facilities LOC must be Interest Only for maximum of 10 years, after which it reverts to P&I amortization. 10 Loan term Principal & interest Blended product Interest only Line of Credit 30 years Interest only period of 10 years maximum. Overall loan term of 30 years 10 years maximum 30 years, LOC must be Interest Only for maximum of 10 years, after which it reverts to P&I amortization 11 Interest rate options The interest rate options available are: Variable Fixed for terms of 1, 2, 3, 4, or 5 years NB: Fixed rates may not be available on all products refer to individual product specifications. Break costs may apply where a fixed interest rate term is broken. 12 Split loan options Except for Construction Loans, borrowers may create sub-accounts within the loan and receive separate statements for each sub-account. These sub-accounts must have the borrowers name in the title followed by an identifying name (or names) and may relate to: Loan purpose personal, investment, business, refinance, purchase Loan type variable rate, fixed rate, P&I, Interest Only Security type owner occupied, investment, property 1, property 2 Product type standard loan product, line of credit There is no fee charged where sub-accounts are established upon settlement of the loan. Where the borrower elects to establish sub-accounts after settlement of the loan, a fee will be Firstmac Residential Lending Policy Page 17

18 payable except in those cases where the sub-account comes into being as a result of a portion of the loan being fixed. 13 Loan-to-Valuation Ratio (LVR) The maximum loan-to-valuation ratios (exclusive of LMI capitalisation) are: Loan purpose Owner Occupied Purchase (Inclusive of LMI Capitalisation) Investment Purchase (Inclusive of LMI Capitalisation) Max LVR 90% 90% Construction Owner Occupied & Investment Purchase (Inclusive of LMI Capitalisation) 80% Line of Credit for Personal Use 90% Refinance 90% Overseas Investors 80% Vacant Land 80% Self-Certified (Lo Doc) additional advances on selected basis only Business borrowers (Inclusive of LMI Capitalisation) 80% 90% These loan-to-valuation ratios apply to all loan types, being interest-only, principal and interest or a blended product of the two. Any loan application above 80% LVR must be mortgage insured. 14 Repayments Repayments must be by way of a direct debit against a nominated account with a financial institution or on some products by electronic salary crediting (refer to individual product specifications). In all cases we must hold a signed direct debit authority against a nominated bank account even though it is not active as is the case with salary crediting. Repayments are not to be made directly to an Originator / Mortgage Manager. Repayments may be made either weekly, fortnightly or monthly. Borrowers may make additional principal payments to their loan account at any time or pay a regular nominated amount in excess of their normal loan repayment. There is no penalty for such payments provided the loan balance is not reduced to less than 50% of the original loan amount during the first five (5) years. Where the loan is reduced by more than 50% during 1 to 5 years, Firstmac Residential Lending Policy Page 18

19 refer to Early Repayment Fees. Break costs may be payable if principal reductions are made during a fixed rate period. If a borrower has elected to make the minimum repayment on their Firstmac loan and a rate rise occurs, Firstmac will automatically increase the loan repayment amount to cover the interest rate rise. Similarly, if a borrower has chosen to repay a fixed amount greater than the minimum repayment and a rate rise occurs, Firstmac will automatically increase the loan repayment to cover the minimum repayment amount in the event that the fixed amount originally set no longer covers the minimum repayment amount required BSB details Borrowers are able to credit their account using a number of methods and will require our BSB to facilitate the transfer. Transaction type For electronic transfers including direct salary crediting, internet and phone transfers BSB For over the counter transactions (Westpac & Bank of Melbourne only) Borrowers must use their own account number (x-reference not application number) in conjunction with the information above. 15 Redraw A redraw of excess payments is available on most Firstmac loan products subject to the loan not being in default at the time of the request. The availability of the redraw facility is always at the discretion of Firstmac. For most loans a redraw may be effected by way telephone, Internet request (funds transfer and biller payment) or by contacting the Originator / Mortgage Manager by telephone or in writing (refer to individual product specifications). Where the loan account has transactional functionality, additional access to redraw funds is available by way of ATM and EFTPOS facilities. 16 Security Valuations The valuation report must be for mortgage lending/security purposes and must be performed by a registered licensed valuer acceptable to Firstmac and the Lender s Mortgage Insurers. Details of currently approved valuers can be obtained by contacting Firstmac or by accessing the Firstmac website. Valuations must comply with the valuation standards as set out in Annexure 2. Generally Firstmac will not accept valuations more than three (3) months old (from the proposal date) but may consider exceptions to this policy upon application with the consent of the Lender s Mortgage Insurer, where applicable. Firstmac Residential Lending Policy Page 19

20 The valuation must be addressed to First Mortgage Company Home Loans Pty Ltd or the appropriate Special Purpose Vehicle (SPV) if there is one applicable. The valuation must also note that the valuation can be relied upon by: Firstmac Limited and its associated companies Genworth Financial Mortgage Insurance Pty Limited QBE Lenders Mortgage Insurance Limited and the respective related companies of these insurers, as advised. Where applicable, approved Valuers should be advised of any inducements associated with the purchase and asked to provide relevant comment. Such inducements may be in the form of rental guarantees from the vendor, subsidisation of costs such as stamp duty or legal fees being included in the purchase price, trade dollars, or rebates. Originator / Mortgage Managers should read the valuation report carefully to ensure: The valuation report is assigned to the relevant interest parties The borrower(s) name(s) is / are spelled correctly The security property address is correct The security property details are acceptable including house type; land size; description; covenants to title; easements; land fill; local government zoning and any adverse features raised by the valuer The valuation is signed and dated by a qualified valuer. The valuation should provide details as outlined in the Australian Property Institute (API) PropertyPRO Pro-forma Report (a copy can be obtained from Firstmac Credit). If a valuation is conditional upon a certain requirement e.g. a survey report or pest inspection, this requirement must be satisfied. Originator / Mortgage Managers are not to provide a copy of the valuation or disclose the valuation amount to any third party e.g. a broker or the borrower/s, as the valuation is for mortgagee purposes only Valuation variation - acknowledgement by proposed borrower(s) Firstmac recognises that situations do arise where valuations on properties offered as security may vary downwards against the purchase price. In these instances, full and open disclosure of the situation must be made to the borrower (excepting the amount of the valuation, which must remain confidential so as not to breach engagement terms of the Valuer) and the borrower s instructions sought on whether to proceed with the proposed loan, given that other loan assessment criteria has been satisfied. A valuation variation is deemed to occur when a valuation is 10% or more below the purchase price of the proposed security. Upon receipt of a valuation which falls within the above category, the Originator / Mortgage Manager must immediately inform the proposed borrower in writing advising the following: Firstmac Residential Lending Policy Page 20

21 The lender s valuation has produced a variation below the purchase price. The lender is still willing to lend (subject to other successful lending criteria). The borrower should be encouraged to make their own enquires about the value of the property. The proposed borrower must acknowledge receipt of the variation notice to signify that they acknowledge the variation and still wish to proceed with the loan. The Originator / Mortgage Manager must not quote the valuation amount as the valuation is for lending purposes only and is addressed to the lender and associated parties. A template of the Valuation Variation Acknowledgement is provided in Annexure 1 and is available to Originators / Mortgage Managers (on their letterhead) at Firstmac Online. Cosmetic changes are allowed but the essence as denoted above must be retained. The borrower acknowledgement of the valuation variation is to form an integral part of the loan documentation and as such must be a condition of Firstmac loan approval and included/referenced in Firstmac s Schedule Off-the-Plan purchases revaluation and increased borrowing at settlement Firstmac recognises that an off-the-plan purchase may present a situation where the borrower seeks to increase borrowing (at the time of settlement) in the light of an improved valuation of the subject property. Normal lending criteria will apply (specifically, re-application and assessment for the increase) but the following additional criteria in respect to the revaluation and request will also apply Mortgage insurance approval Where an existing loan is mortgage insured, an increase to the loan must be mortgage insured or be mortgage insurable. Firstmac policy toward managing such loan increase requests prior to settlement for the purchase will reflect the current policies of mortgage insurers Period of time from exchange of purchase contract to settlement for purchase The settlement for the purchase (and increased borrowing) must be at least 12 months from the exchange of contract to purchase Valuation increased borrowings An updated valuation will be required to support the application for increased borrowing. The valuation must specifically address comparables external to the subject. For a valuation to be acceptable, it must be less than 90 days old. This requirement applies to additional loans and variations LVR (Lending Value Ratio) Where loans are mortgage insured, they must be in line with Mortgage Insurer policy with respect to such lending. Firstmac Residential Lending Policy Page 21

22 Other All other policy terms and conditions for the lending remain unchanged Valuations sales / purchases without the intervention of an agent and non-armslength transactions It is the responsibility of the Originator/Mortgage Manager to correctly advise the valuer of all matters that may affect the valuation such as the fact that no agent is involved or that it is a nonarms-length transaction. Firstmac will accept loans where there is no agent involved in the sale or it is a non-arms-length transaction provided the valuer has commented within the valuation report acknowledging awareness of the terms of the sale and that the valuation represents fair market value as defined by the memorandum upon which the API pro-forma valuation is based Builder / Developer Sales in Queensland Section 27c Certificate More information and enquiry is required in relation to new units or houses in Queensland, where the builder / developer or a related party is the vendor, to ensure the sale prices are not over inflated and to minimise the possibility of fraud. The following additional checks apply to this security type: A copy of the Section 27c Certificate must be supplied to Firstmac and the valuer for all purchases of new property in Queensland. The valuer must confirm in the valuation report that they have sighted the Section 27c Certificate and the total commission involved in the transaction. Specific Firstmac DLA Discretion - may be considered on case by case. 17 Valuation panel For a valuer to be accredited and approved, valuers must be registered with either the Real Estate Valuers Registration Board or the Australian Property Institute Inc. All panel valuers must comply with Firstmac s minimum valuation requirements as well as the requirements of the specific mortgage insurers refer to Annexure 2 for full details. Valuers are required to provide written confirmation of their registration/licensing arrangements together with evidence of an acceptable level of current Professional Indemnity Cover. Valuers must only value properties located within the geographic areas in which they operate. Firstmac reserves the right to restrict the number of valuers on the panel but will work with Originators/Mortgage Managers to ensure that there are sufficient valuers on the panel to meet the needs of the Originator/Mortgage Managers General Firstmac will not settle any loan that has a valuation that does not conform to the requirements of this policy. Firstmac Residential Lending Policy Page 22

23 18 Lender's Mortgage Insurance (LMI) All loans which fall into the parameters outlined in Section 7.1 must be 100% lender's mortgage insured with Cash Flow Cover or mortgage insurable. Where an existing loan is mortgage insured, Firstmac may require Cash Flow Cover on this loan. Lender's Mortgage Insurance (LMI) is protection for the lender, as it insures against any shortfall of monies in the event of a forced sale of the security property. The borrower must be made aware that this is the case and that it does not cover the borrower if any repayment is missed or loss incurred as a result of loan default. The current approved insurers are: Genworth Financial Mortgage Insurance Pty Limited QBE Lenders Mortgage Insurance Limited and respective related companies of these two insurers, as advised. In some instances, Firstmac will pay the LMI premium - please refer to the individual product specifications for details. Current LMI premium scales are available on the Firstmac website. Firstmac will not be responsible for any premium where an Originator / Mortgage has incorrectly quoted or advised a borrower that no premium is payable by the borrower. Where a borrower seeks a variation to a loan which is currently mortgage insured after it has settled, any LMI premium or administration fee charged by a Lender's Mortgage Insurer is always payable by the borrower, regardless of whether or not the borrower was required to pay the premium on the original loan. With all additional advances: Firstmac will pay MI premium on all increases > $50,000 provided LVR remains below 80% and total borrowings does not exceed $750,000. As a duty of disclosure under the Insurance Contracts Act 1984 attaches to applications for LMI cover, the Originator / Mortgage Manager must ensure that any matter known, or that could reasonably have been expected to be known, and that would be relevant to the insurers decision to accept the risk, is disclosed. To withhold information relevant to the insurer s decision to insure a loan could make the insurance policy invalid and jeopardise Firstmac s position. Firstmac will not allow any loan to settle where the LMI undertaking has any approval condition outstanding. 19 Employment and income 19.1 Employment confirmation Employment should be permanent, stable and with a potential term that matches or exceeds the proposed loan term. The following table describes the types of employment and minimum term that is acceptable. Firstmac Residential Lending Policy Page 23

24 If the borrower was retrenched from a previous position and has only recently commenced new employment, this would be a valid reason for a change in employment outside of the term noted. The type of employment is also important as the more employable the borrower, the more forgiving we can be to recent employment changes. Type of employment Permanent full time Permanent part time Casual Second job Contract Self employed Requirements Minimum 2 years continuous employment in the same industry, or Minimum 12 months with current employer Where the borrower is within a probation period, application may be considered based on the merits and strengths of the borrower s overall position. Specific Firstmac DLA Discretion - may be considered on case by case subject to strong mitigants plus: - Minimum of six (6) months in current employment or 12 months in current industry, or - If in current employment for less than six (6) months, must have been in previous employment for at least two (2) years in the same field, or - If in current employment for more than six (6) months but less than 12 months, must have been in previous employment for at least 12 months in the same field. As above. Specific Firstmac DLA Discretion - may be considered on case by case subject to strong mitigants plus minimum of six (6) months in current employment or 12 months in current industry and if a primary borrower, a stable employment history over a two (2) year period must be demonstrated. Minimum of 12 months in current employment. Exercise caution if casual employment is the sole source of income. Where this is the case make enquiries with employer as to prospects for continuity of employment, and an application may be considered on case by case basis. Minimum of 12 months continuous employment. Minimum of 12 months employment in the same industry and a demonstrated level of overall employment continuity. Treat with caution if contract employment is of a short-term nature. Minimum two (2) years trading in the current business. Specific Firstmac DLA Discretion - exceptions may be considered on case by case where a borrower has only 12 months trading in the current business and 2 years in previous employment with similar occupation or field. Firstmac Residential Lending Policy Page 24